Law:

Section:

Section 40(b) of the Income-tax Act, 1961 - Amounts not deductible - Disallowance in case of firms - N was partner in assesses firm in individual capacity - SE received Rs. 50,000 on partial partition of HUF in which he was coparcener with his brothers - said amount was credited in assessee-firm's books not in N's individual account but in separate account of N's own HUF of which he was karta - interest paid thereon also credited to the same account - whether said interest could be disallowed under section 40(b) - held, on facts, no FACTS N, who was partner in the assessee-firm in his individual capacity, received a sum of Rs. 50,000 on partial partition of a HUF in which he was joint with his brothers. This amount, which was calledshestabagam, was deposited with the assessee-firm in separate shestabagam account relating to N's own HUF of which he was the karta. The amount carried interest which was also credited in the same account belonging to the family. The interest so paid was claimed by the assessee-firm as a deduction in the assessment years 1971-72 and 1972-73, but was disallowed and added back under section 40(6) by the ITO, who took the view that although the amount figured in the shestabagamaccount of N's HUF and interest was paid in respect of that amount, yet, since N was the karta of the said HUF, the interest must be regarded as having been paid by the assessee-firm to N who was a partner in the firm. The AAC and the Tribunal confirmed the ITO's view. According to the Tribunal, the only question under section 40(6) was as to who received the interest, and since in this case the interest was received by a partner, though it was payable in respect of an advance made by a joint family, it was to be disallowed under section 40(6), the capacity in which the partner received the interest being irrelevant. On reference: HELD The instant case stood fully covered by the decision in the case of Venkatesh Emporium v. CIT[1982] 137 ITR 593 (Mad.) in which it was held that excepting in certain special statutes and certain special circumstances, the law recognised a joint family as a legal entity, although acting through its karta and that a joint family could…

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